UK consumer price inflation falls as forecast in July

LONDON – British consumer price inflation eased slightly in July, helped by lower airfares and clothing costs, but there were further signs of price pressures building in the property market.

ECONOMISTS' COMMENTS

ALAN CLARKE, SCOTIABANK:

"Moderate slowdown, which is to be expected. Some of the heat is coming out of the food component: double digits in vegetable and food prices not that long ago and that's fading.

"We're seeing core inflation slowing down and the Bank of England should be happy with that. But we are still a chunky margin above the 2 percent target and I don't think that is going to go away completely for some time to come.

"When you compare the recent history, when you've seen inflation at 4 or 5 percent, it's a relief. We're in the range that the Bank of England expected to get inflation to... But I think it's very hard for inflation to slow to 2 percent when you've got things like university tuition fees, tax hikes and the changing clothing methodology a few years back, all making it much harder to hit 2 percent than it used to be.

"One thing that is quite key for further ahead, the fact that the RICs survey is absolutely booming, suggests that in the next six months or so RPI inflation will outpace CPI by an even greater extent."

JAMES KNIGHTLEY, ING:

"Given that the Bank of England has said any policy tightening is contingent on the unemployment rate falling below the 7 percent threshold, the market relevance of CPI has diminished to some extent. However, we have to remember the BoE's so-called 'knockouts'. If we see commodity prices rise and sterling weaken in the months ahead, this could result in higher CPI than the BoE anticipates, especially if UK activity remains firm. In any case, we suspect that the unemployment rate will fall more quickly than the BoE anticipates. Consequently we feel that the first rate hike is more likely to come closer to the beginning of 2015 than the end of 2016 and see medium-term upside for sterling and market interest rates."

PETER DIXON, COMMERZBANK:

"In terms of where it came in, it was pretty much on the money - 2.8 percent. The core number was quite encouraging in a sense that it fell by 0.2 percentage points to a rate of 2 percent, which is a slightly bigger fall than what was expected, so that's a good sing.

"All in all, if you look at what the Bank of England is saying - inflation is likely to remain above target until the early months of 2015 but on a downward trend, I would generally agree with that. Many of the factors that have pushed up inflation over the course of recent months are likely to fade, so I generally believe that inflation will head significantly below the 2.5 percent threshold that the Bank of England outlined last week and probably sooner rather than later. So I don't think inflation is going to trigger the Bank of England's knockouts at all. We really should be focusing on the unemployment numbers."

PHILIP SHAW, INVESTEC:

"Essentially, both the CPI and PPI reports are very close to market expectations. On the CPI, the figures do suggest that the downtrend in inflation is in place and we think that there is a reasonable chance that inflation will be at the 2 percent target in spring next year."